Presentation to Fixed Income Investors
Clare Miller – Chief Executive Officer Mark Hattersley – Chief Financial Officer Richard Cook – Group Development Director Gareth Francis – Director of Treasury and Corporate Finance CLARION HOUSING GROUP 13 October 2020 Disclaimer
The information contained herein (the “Presentation") has been prepared by Clarion Housing Group Limited and its subsidiaries (the “Group”) and is for information purposes only.
The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act), or the laws of any state or other jurisdiction of the United States, and may not be offered or sold within the United States, or for the account or benefit of, U.S. Persons (as such terms are defined in Regulation S under the Securities Act), absent registration or an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state laws. This Presentation is made to and is directed only at recipients who, if in the United Kingdom, are (a) persons who have professional experience in matters relating to investments falling within article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") or (b) high net worth entities falling within article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any person in the United Kingdom who is not a relevant person should not act or rely on this Presentation or any of its contents.
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Sourcing – Unless otherwise stated; Clarion Housing Group Annual Report and Accounts 2019/20 and associated Offering Materials Agenda
Group overview
Operating overview
Development
Financial overview
Business Plan
Treasury
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 O C T O B E R 2020 3 Group overview Overview
Robust business response to the Covid-19 crisis FY2020 development: 2,101 homes completed, 86% affordable (largest affordable output in sector) o Challenging time during lockdown with focus on critical repairs only. Increased support and focus on Strategic response to development market conditions: vulnerable and elderly residents. o Reduction in development target from 5,000 to o Service delivery maintained; focus on catch-up of 4,000 homes p.a. repairs and maintenance in the near-term o Increase of rented tenure to 50% (2019: 30%); Regulatory grading of G1/V1 (one of only 4 G15 HAs) corresponding reduction in shared ownership confirmed in March subsequent to an In Depth Assessment. Remain committed to highest standard of Maintaining focus on Fire and Building Safety - governance and positive regulatory engagement. including significantly increased spend (proactive enhancements). Financial strength and discipline remain central to corporate strategy. Continued delivery of solid results: Sustainability at the heart of what we do – e.g. o Operating and net surplus steady year on year commitment to achieving a minimum EPC rating of B for o Top quartile performer vs peers in key metrics all new build and D for existing stock in the near term
Customer satisfaction is the bedrock of strategy. Social impact – we are more than a landlord: Current levels of 83.3% (financial year end: 80.9%). o £130m Social Value created for residents and communities o 3,834 people supported into employment
R O B U S T P L A T F O R M E N A B L E S DELIVERY OF CORPORATE OBJECTIVES
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 5 Operating environment
Covid-19
Fire and Building Safety Regulation
2050 net zero carbon target
Social Housing White Paper
Increasing customer service expectations
Continuing Welfare Benefit Reform
Planning
Longer term sales environment
Right to Shared Ownership
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 6 Strategic priorities Building Homes. Developing Futures.
Strategic Themes Be the housing and service provider of choice Mission Build a successful, respected and influential national business Clarion Housing Group provides Build new homes and successful communities good quality, affordable, homes and neighbourhoods to people inadequately s e r v e d by the Enabling Objectives market.
Maintain our financial resilience
Exploit new technology and innovation
Be a great place to work
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 7 Our Landlord Footprint
After transfer of our North East stock the current ANNUAL RENTAL INCOME footprint now extends from Plymouth to Hull. (£ per postal district)
However, of our c.125,000 homes:
o c.49,000 are in Greater London generating 42% of rental income
o c.27,000 are in the South East generating 24% of rental income
o 80% of rental income in Greater London, Home Counties and South East
Large demand in these areas per households on the social housing waiting list at end of 2019:
o 243,551 in London (21% of total national households)
o 114,573 in the South East (10%)
o 107,449 in the East (9%)
High occupancy continues at 98.2% (August)
STRONG DEMAND FOR OUR PROPERTIES
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 8 Corporate and Governance Structure
CLARION HOUSING GROUP
CLARION CLARION T R E A S U R Y H O U S I N G LATIMER FUTURES VEHICLES ASSOCIATION
AUDIT AND RISK COMMITTEE TREASURY COMMITTEE (CHAIR: TOM SMYTH) (CHAIR: JOHN COGHLAN) Advises on funding strategy for the Group and provides Advises the Group and subsidiary boards on the expert opinion to the borrowers within the group. effectiveness of assurance arrangements across the group. Has oversight of the risk framework, advising the Group on the effectiveness of arrangements.
INVESTMENT COMMITTEE (CHAIR: MARK HATTERSLEY) REMUNERATION & NOMINATIONS COMMITTEE Responsible for scrutiny of all proposed projects involving (CHAIR: SUE KILLEN) major investment, by way of acquisition, development, Responsible for Board member and chief executive regeneration or major repairs. Approves within delegated appointments. Agrees the remuneration strategy for all limits and recommends to the Group Board any projects employees and remuneration for the Group CEO and outside agreed delegations. executive directors.
GROUP EXECUTIVE TEAM (CEO: CLARE MILLER) Responsible for assisting the Group CEO in the development and implementation of strategy, budget and operational performance.
NB: Summarised Group structure - only key entities shown. CLARION HOUSING GROUP Latimer - entity undertaking commercial activity PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 9 Group Board
DAVID AVERY Former President of European Operations for Novellus Systems, a Fortune 500 company. Held a variety of NED roles including an NHS Trust; currently NED at Gen2 Property Ltd. (Group Chair)
SUE KILLEN Former CEO of St John Ambulance. Previous career in government including Director General at the Department for Transport; leading work on drug abuse, preparations for single (Vice Chair) currency, various privatisations.
TOM SMYTH Executive Vice Chairman, Financing Advisory and an Advisory Partner at Rothschild & Co, one of the world's largest independent financial advisory groups. Tom is a member of the (Treasury Committee Chair) Association of Corporate Treasurers
DAVID ORR Former Chief Executive of the National Housing Federation (NHF), thirty year career in housing, which includes time as the Chief Executive of Newlon Homes and working for (Housing Association Chair) Centrepoint. Former president of Housing Europe and previously Chief Executive of the Scottish Federation of Housing Associations
JOHN COGHLAN Chair of the Audit Committee at Severn Trent plc; a director of Associated British Ports and Chair of its Audit Committee and Chair of the Freight Transport Association Ireland. (Audit and Risk Committee Chair)
RUPERT SEBAG-MONTEFIORE Recently retired from Board and Executive roles at Savills plc. Roles included Head of Global Residential and Chairman and Chief Executive of Savills (L&P) - Savills' largest (Latimer Chair) subsidiary, including the main UK network.
GREG REED CEO at HomeServe Membership (previously Chief Marketing Officer). Former Head of Credit Cards and Overdrafts at RBS; President UK Card Services at Bank of America.
GAVIN BARWELL Served as Chief of Staff to Prime Minister Theresa May from June 2017 to July 2019, having previously served as the Minister for Housing between July 2016 and May 2017 and as the Member of Parliament for Croydon Central from 2010 to 2017. Gavin was also a councillor for the London Borough of Croydon between 1998 and 2010.
GRAHAM FARRANT Chief Executive of Bournemouth, Christchurch and Poole Council. Graham has led complex political organisations as Chief Executive in both the public and private sectors with a track record of delivering change. Graham brings a background in housing and local government.
AMANDA METCALFE A highly experienced marketing director, having held a range of digital and consumer roles at organisations such as Ebay Inc., where she was UK Marketing Director, before taking up her current role as Place, Brand and Marketing Director at the Crown Estate - a £14.3 billion UK real estate business.
CLARE MILLER Chief Executive Officer
MARK HATTERSLEY Chief Financial Officer
TREASURY COMMITTEE
MEMBERS ON THE GROUP BOARD: Tom Smyth, Clare Miller, Mark Hattersley. OTHER MEMBERS:
KWOK LIU Deputy Treasurer, National Grid. Trustee of the National Grid UK Pension Scheme.
ARUNA MEHTA Former Director at TDA NExT. Currently a NED in Education and Housing. Career experience in technology, operations, programme and business management across Investment Bank, Asset Management and Investor Services.
MAXIM SINCLAIR Head of UK Division Commercial Real Estate, Wells Fargo Bank. Former Head of UK Division Eurohypo in London and Luxembourg and Head of Property Finance Sanwa Bank. Previously at BNP and NatWest.
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 10 Group Executive Team
CLARE MILLER Clare was previously Affinity Sutton’s Group Director of Governance and Compliance prior to the merger with Circle Housing to form Clarion in 2016. Chief Executive Officer Prior to this she was an Executive Director at the Tenant Services Authority, with responsibility for housing association regulation. Clare has also worked for the Housing Corporation, where she led on the financial regulation of associations in special measures. Clare is a chartered accountant, qualifying with Coopers & Lybrand.
MARK HATTERSLEY Mark joined from Sovereign Housing Association where he was CFO for three years. Prior to joining Sovereign, he was Director of Finance & Infrastructure / Deputy Chief Financial Officer CEO at Staffordshire University and Finance Director at Birmingham International Airport.
MICHELLE REYNOLDS Michelle was formerly Clarion’s Group Director for Commercial Services and has served on the Group Executive team since Clarion was formed in 2016. Michelle has Chief Operating Officer over 25 years experience; her previous roles include directorships at Affinity Sutton and William Sutton, and Chief Executive of Aashyana. As Chief Operating Officer, Michelle leads on the transformation of the Group’s customer service offer to its 360,000 residents. Michelle also has responsibility for overseeing the long-term investment plan for new homes and neighbourhoods, creating mixed communities that are desirable and fit for the future.
RICHARD COOK Richard joined Clarion in February 2019 from Lendlease Europe, where he was Head of Residential and responsible for delivering 1,000 new homes per year of mixed Group Director of Development tenure from open market to affordable. Richard joined Lendlease in 2010 as Head of Delivery of the Design and Build contracts on the Olympic Village for London 2012. His extensive career in residential development includes senior roles at Mace and George Wimpey PLC (now Taylor Wimpey PLC).
IAN WOOSEY Ian joined Clarion Housing Group in February 2018 as the Group’s first Chief Information Officer. Ian has worked in technology leadership, consulting and retail Chief Information Officer operations roles during his career, often leading large scale programmes. Prior to joining the Group, Ian was Chief Information Officer for the food distribution company Brakes and previously at Carpetright.
CATRIN JONES Pre-merger, Catrin joined Affinity Sutton as Director of Customer Services in 2013 having held a number of senior customer service roles in various sectors. After Group Director of Corporate Services merger, Catrin was appointed Director of Business Transition, playing a vital role in the Group’s transformational change programme. Catrin has responsibility for a range of corporate services including HR, Facilities, Deeds, Governance, Health & Safety, Internal Audit and Legal Services.
ROB LANE Rob joined Clarion at the time of the merger as Director of Commercial Finance. A qualified accountant, Rob's career has included appointments in senior Group Commercial Director finance/Director roles in the Dominos Pizza Group and Network Rail Property. Rob is responsible for Clarion's subsidiary organisations - Clarion Response and Grange. Rob also leads on strategic asset management, including regeneration, and the Group’s approach to future mergers and acquisitions.
CATHERINE THOMAS Catherine has held senior marketing and communications roles in real estate and has a particular affinity with tech, data, content, reputation and experience Group Director of Corporate Affairs convergence. Her skills in place making and destination marketing were honed at Land Securities, where she led the communications team for Victoria SW1, including Nova, the highly successful mixed-use complex. Catherine has also worked on major European and Middle Eastern real estate projects.
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 11 Operating overview FY2019/20 highlights
12 MONTHS TO 31 MARCH 2020 12 MONTHS TO 31 MARCH 2019 (FY 2019/20) ACTUAL (FY 2018/19) ACTUAL
RESIDENT SATISFACTION 80.9% 80.5%
RESIDENT SATISFACTION WITH 88.8% 89.8% REPAIRS
ARREARS 5.2% 4.8%
HOMES OWNED AND MANAGED AT 124,399 124,333 THE END OF THE PERIOD/YEAR
OCCUPANCY RATE 98.3% 98.6%
REPAIRS COMPLETED ON TIME 94.6% 95.4%
PROPERTIES MEETING DECENT 100.0% 100.0% HOMES STANDARD
SOCIAL VALUE OF COMMUNITY £130m £125m INVESTMENT ACTIVITY
AFFORDABLE HOMES COMPLETED 1,810 1,163
FOCUSSED ON DELIVERING A CONSISTENTLY GOOD QUALITY CUSTOMER EXPERIENCE
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 13 Covid-19 Operational Impact and Recovery
Main Covid impact on the operations Business recovery during lockdown Business as usual wherever possible:
Repairs: restarted all repair services by July 2020 Closure of all offices and working from home regime introduced Development: sales offices reopened, all building sites restarted to various degrees
Other key areas such as fire remedial works fully restarted Repairs & Maintenance reduced to critical repairs only Catch-up of repairs and maintenance targeted in the near-term, subject to Covid restrictions Customer services remained fully operational Safety for residents and staff remains paramount
Increased support and focus on vulnerable Business continuity plan updated and clear and elderly residents actions in place to mitigate the risks flowing out of a new Covid operational lockdown Building sites closed and all non-essential spend on development paused Continued focus on managing development capex No reliance on government furlough scheme Liquidity increased CLARION PREPARED FOR A CONTROLLED OPERATIONS CONTINUED EFFICIENTLY RETURN TO NORMAL SERVICE DELIVERY
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 14 Welfare Benefit Reform
UNIVERSAL CREDIT
We have seen an increase in tenancies with customers claiming UC as a result of Covid-19. Recorded claimants in February 2020 (pre-lockdown) c.12,500 v’s c. 19,500 end of September 2020
43% (41k) of customers renting are self-funding and 57% (c. 56k) receive housing benefits.
So far, transition to UC has not had a material impact on arrears in Clarion (increase in line with total portfolio). Total arrears at end of August stood at 6.1%.
Significant proactive work with new UC claimants by Welfare Team
Continue managing customer accounts proactively and significant advice and guidance to customers in difficulty
BENEFIT CAP AND UNDER OCCUPATION
Minimal exposure to Benefits Cap and Under Occupation but continue to provide support and advice
With growing UC numbers, the overall significance of the Benefit Cap and Under Occupation is decreasing
IMPACT MUTED SO FAR BUT WE CONTINUE TO FOCUS ON MITIGATION
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 15 Residents and Covid 19 – Clarion 2020 Index
Selected preliminary key findings from the Clarion Index 2020 Survey (2,000 surveyed residents)
Age group of > 55 years less affected financially, as they are more likely to have a fixed income
27% of residents in paid employment have been furloughed, 19% work fewer hours or have been made redundant
Middle-aged group reports worsening mental health – potentially because this age group has more care (children, elderly) or financial obligations
More information at https://www.clarionhg.com/media/ 2095/final-the-impacts-of-covid-19-on-clarion-residents.pdf
Clarion’s response
renewed focus on supporting
young residents with welfare advice and employment support
middle aged residents that have care duties
prioritising access to and improving outdoor green spaces through local offers, new developments and regeneration programmes
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 16 Fire safety
‘Early adopter’ on Resident Engagement for Recent achievements: Building Safety – report presented to MHCLG in March 2020 o Completed all high risk cladding replacement ACM on our owned stock Member of MHCLG’s Social Sector Engagement Best Practice group o Carried out intrusive investigations on all high risk cladding systems on buildings over 18m+
Clarion is the only HA working with the British o Upgraded passive and active fire safety Standards Institute (“BSI”) on the code of practice measures to over 165 sheltered and supported for digitisation of Fire Safety records housing sites
Trialling new initiatives ahead of legislation: asset o Completed programme of installing fire alarm digitisation of our higher risk buildings (“digital system in 1,300 converted street property twins”), safety case file programme buildings (over 3,500 flats) £18m Limited exposure to high rise: Clarion has 7 10+ Spent on fire storey blocks safety remedial work in FY2019/20 Fire safety programme – near-term focus
Continue work on our cladding systems and Preparatory work for the Building Safety Act passive fire works (e.g. fire door expected to come into force during 2021 installations and fire stopping )
Further active fire safety works (e.g. fire Continual FRAs alarm systems, sensors, emergency lighting )
C O N T I N U E D P R O A C T I V E TOTAL SAFETY APPROACH BEYOND THE LEGAL REQUIREMENTS
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 17 Environmental, Social and Governance (ESG)
ESG focus embedded in the Group: Founding member of sector-led Sustainability Reporting standard o Sustainability and CSR teams https://thegoodeconomy.co.uk/resources/reports/UK o Large social impact through Clarion -Social-Housing-Building-a-Sector-Standard-Approach- Futures to-ESG-Reporting-May-2020.pdf o Dedicated regional resident involvement teams Sustainability strategy currently under review by JLL, led by Clarion’s o Improving energy efficiency of our Sustainability Champion (Richard Cook) homes
o Commitment to good governance Committed to inclusion in the 2021 JLL NextGeneration Sustainability Awarded “Certified Sustainable Housing Benchmark index Label” in November 2019 – first pan- European accreditation assessing Sector leading approach to new build comprehensive sustainability criteria development e.g. 99% of surveyed homes completed in last financial year Sustainable Housing Finance Framework achieved EPC B or above https://www.clarionhg.com/about/sustainability/ sustainable-housing-finance-framework/
ESG IS IN OUR DNA
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 18 Housing Quality and Energy Efficiency
Improvement of energy efficiency is central to the Clarion 2040 strategy, a major programme of investment to upgrade our properties
EPC ratings min. D by 2025; min. C by 2040 Investment of c.£30m over the next 5 years
New homes adhering to sustainability standards
Min. B EPC rating for new build
Commercial fleet Average SAP rating for Clarion’s stock is 69.7 Trialling electric vehicles FY 2019/20 achievements Carbon emission and waste reduction nearly 3,200 energy efficiency measures (new boilers, replacement Installing smart meters of electric storage heaters, insulation etc.) installed generating 1,424 Tonnes CO2 Lifetime carbon savings Identifying sources of CO 2 emissions >£350k p.a. (or £110 per household p.a.) estimated energy savings Buying 100% zero carbon electricity for residents
COMMITTED TO IMPROVING ENERGY EFFICIENCY - REDUCING RUNNING COSTS
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 19 Clarion Futures – social impact
Clarion Futures is the Group’s charitable foundation Key 2020 achievements
Through Clarion Futures, Clarion will invest £150m £130m Social Value created for residents over ten years in 3 core areas: and communities
o Clarion Futures Communities: make Supported 3,834 people into work Clarion’s estates and neighbourhoods attractive, inclusive and vibrant places to live Placed 254 people into apprenticeships
o Clarion Futures Jobs & Training: support Awarded more than £255,000 in our residents into work through a national community grants to 63 projects employment and training programme Supported 7,808 young people with jobs, o Clarion Futures Money & Digital: support formal training or volunteering our residents to manage their finances more effectively and to get online Supported 2,628 residents with money guidance and energy advice
For a full spectrum of Clarion Futures’ activities and Helped 3,512 residents to access free achievements: https://www.clarionhg.com/charitable- debt advice foundation/ Delivered 4,621hrs digital skills training Leading HA “Kickstart” programme (government youth employment programme). Includes 250 persons to be placed internally; 500 in supply chain. CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 20 Development Development Strategy
OVERVIEW 2020
Strategy modified with the aim of now delivering 4,000 new homes each year, reflecting a slower pace of development compared to 2019 Business Plan (target 5,000 p.a.)
80% of new homes delivered being affordable, but with an increase in affordable rent from 30% to 50% thereby reducing market risk exposure
Further strengthening of capacity and expertise, underpinned by robust governance structure and processes
Good sales performance in a volatile year, with sales impacted predominantly by Covid-19 but also by Brexit uncertainty
Encouraging year-to-date sales figures OBJECTIVES
Building new homes and successful communities Affordable housing of all types, focussed in areas of the greatest need Our vision is to be the UK’s leading affordable housing developer Through mixed tenure development including private sale and market rent Deliver a variety of products and tenures at a range of affordable price points to meet a range of needs Producing great place making
LOWERED TARGET OUTPUT; REDUCED SALES MIX
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 22 Development & Covid-19
The health and safety of all site staff remain a key priority to Clarion
Sites capacity broadly at pre-covid 19 levels with greater efficiency
Sales Offices re-opened since June
Capex remains tightly controlled
Focus on medium to long-term opportunities
Current climate gives rise to opportunities, allowing selective acquisitions where value can be enhanced
Prudent outlook approach – growth of the business delayed by 12 months as a response to market uncertainty
FOCUS ON SELECTIVE ACQUISTIONS WHERE VALUE CAN BE ENHANCED
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 23 Development Pipeline
Business Plan Development Completions Pipeline Post Covid-19
Completions forecast in the May 2020 Revised Outlook have been delayed by 12 months, further aligning strategy to market conditions
Prudent Development Approach
Visibility – Good view on the delivery of our business plan in the near term
Flexibility – Possibility to scale up or down depending on market conditions
Long term view - Development plans are not subject to buying over-priced assets in the short term
FLEXIBILITY IN PROGRAMME TO RESPOND TO MARKET CONDITIONS
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 24 Corporate and Governance structure
CLARION HOUSING GROUP
INVESTMENT COMMITTEE GROUP EXECUTIVE
LATIMER HA
Legal entities Committees
GROUP BOARD INVESTMENT COMMITTEE (CFO chaired) Ultimate responsibility for effective governance of the Group, Scrutinises all proposed major investment, by way of acquisition, including its development activity development, regeneration or major repairs Sets strategic direction, approves major projects Approves within delegated limits and recommends to the Group Delegates day to day responsibility to Group Executive Board any projects outside agreed delegations.
LATIM ER GROUP EXECUTIVE Board includes three NEDs with funding and development Day to day oversight of the management of the business expertise Assists Group CEO with development and implementation of Chair - Rupert Sebag-Montefiore (formally of Savills plc) strategy, budget and operational performance. Independent Business Plan and strategic objectives Independent investment decisions
CLEAR RISK SEGREGATION WHILST ROBUST GROUP OVERSIGHT AND CONTROL MAINTAINED
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 25 Existing sales pipeline
Sales strategy – targeting mid-market segment
Geographically diversified - excluding regeneration, 2/3rds of the pipeline outside London, in key growth areas
Key market sale projects include:
Kirkstall Road, Leeds
• Mixed use Placemaking development
• Partners for the delivery of BTR and student housing
• Increase in affordable from 7% to 35%
• Employment and workspace
• Brownfield regeneration site
GEOGRAPHICALLY DIVERSIFIED EXPOSURE; MEASURED MARKET SALE RISK
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 26 Existing sales pipeline
Conningbrook Lakes Ashford: 240 new homes Cocoa Works, York: 279 new homes, 84 affordable
Sherford Plymouth: 1,496 new homes
GEOGRAPHICALLY DIVERSIFIED EXPOSURE; MEASURED MARKET SALE RISK
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 27 Current pipeline
Average Sales Prices Market Sales £379k Market Sales £439 psf Market Sales W e i g h t e d a v g sales price First tranches £108k £402 psf Market Sales W e i g h t e d a v g sales price
Market Sales Shared Ownership
FOCUS ON MID - MARKET SEGMENT
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 28 FY2020 Sales performance
Strong sales result in a difficult market
2019 dominated by Brexit uncertainty and elections. From March 2020 onwards Covid-19 impacted on sales
MARKET SALES UNITS SHARED OWNERSHIP UNITS
97 109 489 618
FY2019 FY2020 FY2019 FY2020 * FY2020: net of £4.7m impairment due to contractor failure (2018/19 : £0.4m reversal)
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 29 Sales stock and completions (30 September)
Current Market
All sites open for viewing
Values generally holding at pre-lockdown levels
Stock – 328* Shared Stock -119* Stamp duty holiday has led to increased interest Ownership Units Market Sales Units Lenders have re-entered the market Shared Ownership position at Private sales position at the the end of September 2020 end of September 2020 Current stock levels broadly in line with 31 March 2020 levels (SO stock 339 units, MS o Sales completions: 382 YTD o Sales completions: 35 YTD stock 119 units) o Reservations (net of o Reservations (net of Forward sale programme grown significantly cancellations) : 553 cancellations) : 79 o Current Exchanges: 26 o Current Exchanges: 12
Record levels of sales YTD but external risks persist: Increased mortgage constraints and availability and restricted LTVs Entire sector experiencing delays in converting reservations into exchanges and completions Shortages in surveyors and solicitors also contributing to the backlog
STRONG FIRST HALF IN 2 0 2 0 / 2 1
* Stock figure is unsold units as at 30 September 2020 less offers signed, reservations and exchanges CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 30 Sustainable Development – the route map to Operational Net Zero Carbon New Homes (on own controlled sites)
2021 2022 2023 2024 2025 We will set a minimum Zero carbon trials will be From 2023 all new homes By 2024 we aim to deliver All homes delivered from standard of a 35% carbon expanded to cover larger delivered will be zero all social and affordable 1 Jan 2025 onwards, as reduction, bringing our developments, especially carbon compatible. This rented homes as net zero well as commercial spaces regional projects up to apartments. means they will have a carbon (in operation) and community centres the GLA requirements for From 2022 we will low energy demand with will be built to net zero London transition away from gas no gas or oil burning. carbon standards (in We are implementing boiler installations as we Any commercial spaces in operation). zero carbon trials on our remove fossil fuels from developments will be zero small site programme our developments carbon compatible, with developing learning for Embodied carbon requirements for the wider business. measurement to be prospective tenants to fit All new homes will have a undertaken on all Clarion out sustainably – including zero carbon transition new home developments . the heating/cooling. plan for future We will increase the improvements. minimum standard to 50% carbon reduction over Building Regs compliance
OBJECTIVES
Building new high performance homes Increased savings for residents
Meeting and exceeding Government legislation Embrace grid decarbonisation and new technology
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 31 Summary
Robust governance structure and processes, including a rigorous investment appraisal methodology
Realignment of strategy to the prevailing market conditions
Continued flexibility to adjust expenditure
Quality and energy efficiency are key priorities
Geographical spread with a mid market positioning – not focusing on high end London residential
Continual monitoring of sales risk, with risk share via JVs
Limited market / private sale exposure, reducing further going forward
Focused Sustainability strategy in place
FOCUS ON MAINTAINING CREDIT QUALITY
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 32 Financial overview Financial Strategy & Principles
Sustainable and robust financial profile that enables us to achieve our corporate ambitions
A clear corporate split between regulated and non-regulated activities
Prudential financial framework underpins continued strong financial discipline (currently being reviewed) £ Focus on market access
Debt can always be serviced out of the low risk HA surplus
Whilst not relied on, asset sales remain a central plank of strategy – we will not just “gear up”
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 34 Financial Golden Rules
The Financial Golden Rules are Clarion’s internal financial metrics and set thresholds for financial planning. They act as “early warning” signals.
Group performance in line with metrics - bar net debt / Financial Golden Rules – Draft Group level HY2020/21 performance turnover (the threshold for which was reduced from 4.5 times). Conscious decision taken not to chase turnover EBITDA MRI Interest cover (>1.5) 1.9 (which had originally been anticipated at higher levels). Development Sales as a % of Turnover (<40%) 18%
Group remains committed to continue employing a Net debt / turnover (rolling 12 months) (<4.0) 4.5 prudential financial framework on an internal basis Operating Margin (excl. Disposals) (>30%) 31%
A full review of FGRs underway this quarter, as part of a planned cyclical review (current metrics set Spring 2016)
New framework will be communicated once approved
FINANCIAL DISCIPLINE CORE TO CORPORATE STRATEGY
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 35 Statement of Comprehensive Income
A C T U A L A C T U A L 2 0 1 9 / 2 0 * 2 0 1 8 / 1 9 £M £M
RENT & OTHER INCOME* 7 1 4 . 1 7 2 1 . 7 F Y 2 0 1 9 / 2 0 SHARED OWNERSHIP, OPEN MARKET SALES & DEV. CONTRACT INCOME 1 2 7 . 4 9 4 . 2 Solid performance, TURNOVER 8 4 1 . 5 815.9 despite challenging OPERATING COSTS ( 4 9 6 . 7 ) ( 4 8 1 . 6 ) o p e r a t i n g
COSTS OF SALE ( 1 1 0 . 6 ) ( 8 5 . 3 ) environment
ASSET DISPOSAL SURPLUS 5 8 . 8 3 3 . 3
OPERATING SURPLUS 2 9 3 . 0 282.3
OPERATING MARGIN 3 5 % 3 5 %
OTHER GAINS/(LOSSES) & SURPLUSES, INCLUDING JCEs** ( 8 . 9 ) 1 3 . 1
NET FUNDING COSTS*** ( 1 1 4 . 3 ) ( 1 4 1 . 9 )
SURPLUS ON ORDINARY ACTIVITIES BEFORE TAX 1 6 9 . 8 153.5
STRONG PLATFORM FROM WHICH TO ABSORB COVID IMPACT
S o u r c e : 2019/20 G r o u p Financial Statements; 2018/19 Group Financial Statements ( 2018/19 data from comparatives shown in 2019/20 statements) * Turnover less Shared Ownership First Tranche Sales and Open Market Sales ** Surplus on disposal of other fixed assets + Surplus on disposal of operations + Share of operating surplus of JCEs and as s o c iates + Gain/(loss) on revaluation of investment properties *** Interest receivable + Interest payable and financing costs + Movement in fair value of financial instruments CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 36 Long term consistent performance
Operating surplus impacted by 1% year- on-year rent cuts for 4 years from FY2017 to FY2020 inclusive
Increased revenue cost pressures arising from fire and building safety spend
Focus on operating efficiency to mitigate cost pressures - and create capacity for long term investment
OPERATING MARGIN HELD UP DESPITE RENT CUTS AND COST PRESSURES
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 37 Operating Costs
Reduction in controllable operating costs in real terms despite new costs (e.g. fire and building safety)
Equates to £39m (10%) for FY19/20 vs FY16/17 (£15m or 4% in nominal terms)
Realised efficiencies are reinvested in business including for fire and building safety
Controllable costs exclude depreciation and amortisation
Controllable Operating Cost per Unit has increased by 3.1% compared to prior year but is £186 (5%) down compared to FY16/17
Equates to £404 per unit (11%) for FY19/20 vs FY16/17 in real terms
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 38 Benchmarking (2019/20 accounts – G15 + 5 largest)
OPERATING MARGIN (EXCL. ASSET SALES)* EBITDA MRI INTEREST COVER*
31%
2.1
28%
26%
24%
24%
23%
23%
22%
1.5
21%
21%
1.5
20%
1.4
19%
1.4
1.3
18%
1.2
1.2
1.2
16%
16%
1.1
1.0
13%
0.9
0.9
0.8
0.5 0.4
* Operating Surplus less surplus from asset sales and, where included in Operating Surplus, adjusted to deduct investment * Definition per Regulator (which excludes surplus from asset sales), except: 1) where included in Operating Surplus, EBITDA MRI property revaluation and surplus/(deficit) from joint ventures. Turnover unadjusted. adjusted to deduct investment property revaluation and surplus/(deficit) from joint ventures; 2) Clarion interest receivable adjusted to remove £15.5m breakage income; 3) credits to interest due to release of acquisition accounted loan fair values excluded
OPERATING COST (EXCL. DEP'N & AMORT'N) PER GEARING (DEBT / NBV HOUSING ASSETS)*
UNIT MANAGED - EXCL. LEASEHOLD*
59.1%
53.3%
53.1%
6,336
51.0%
50.8%
46.2%
46.0% 46.0%
45.3%
44.7%
5,261
5,109
5,075
42.3%
5,000
41.4%
4,926
4,827
40.4%
39.9%
39.0%
4,608
4,594
4,380
4,333
4,267
4,029
3,979
3,443 2,912
* Operating Surplus less surplus from asset sales and, where included in Operating Surplus, adjusted to deduct investment * Definition per Regulator (total debt less cash / net book value of housing assets). Places for People excluded due to incomparability. property revaluation and surplus/(deficit) from joint ventures for comparability (most HAs exclude from Operating Surplus). + HA elected for ‘deemed cost’ on adoption of FRS102 for some assets. ‘Cost’ for these assets reflects valuation at March 2014.
Based on all available accounts published as at 12th October. See Appendix for further detail of definitions. CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 39 Business Plan 2020 Long Term Financial Plan – key changes vs 2019
Integration of material Covid19 changes
Slower development programme – “target” development output of 4,000 units p.a. (2019: 5,000 units)
Change in tenure mix: 50% affordable rent (2019: 30%), 30% shared ownership (2019: 50%) and 20% private sales (2019: 20%).
increase the supply of affordable rent will help to meet the anticipated increased demand of affordable accommodation expected in an economic d o wn t u r n
r eduction of sales risk exposure
Grant funding on new generic units in line with grant rates currently being achieved
30% increased investment in existing homes over next 10 years
Reduced debt levels: primarily driven by lower new development capital expenditure
THE NEW PLAN REFLECTS OUR PRUDENT APPROACH IN UNCERTAIN TIMES
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 41 Asset Disposals
Key Drivers Disposals Strategy: FY2020 surplus of £58.8m:
o Based on the Real Estate Strategy – “Clarion o including a stock transfer of Newcastle and South 2040” setting out long term portfolio targets for Tyneside (March 2020) – 1,342 units sold to The asset quality, geography, archetype etc Riverside Group o Exit non-core areas but o Ensure that homes are sold to HAs (or LAs) with good customer service standards, sound financial strength and a local presence
LTFP assumptions o Disposals have been shifted into the following financial year due to Covid19, reflecting a 2040 prudent view o The long term disposals strategy does not require Clarion to dispose of assets in an adverse environment or at unattractive conditions
SUCCESSFUL EXECUTION OF DISPOSAL STRATEGY
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 42 Overview
Good performance, despite adverse external environment
Financial risks well managed and mitigated
Continued drive for efficiency gains, for example: o IT enabled business transformation o Office rationalisation programme o In-sourcing o Procurement
Capacity created to reinvest in assets and service delivery
Maintaining financial resilience remains a strategic priority
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 43 Treasury Debt and Liquidity Overview
KEY DATA (position as of September 2020) Total committed funding £5.2bn Hedged position 87% fixed £1.16bn Of which £1.06bn (21%) undrawn Fair Value Derivatives (£412)m Strong Core Liquidity position £1.16bn Liquidity of which c. £0.1bn cash and c. £1.06bn undrawn facilities
STRONG LIQUIDITY; GOOD INTEREST COST VISIBILITY; DIVERSIFIED FUNDING SOURCES
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 45 Facility Repayment Profile and Property Security 30 September 2020
Plus a further
c. £1.6bn Facility maturities are well distributed, reducing Large charged but unallocated Unencumbered large refinancing risks in a single year security position of c. £1bn Assets
MANAGEABLE REFINANCE RISK; EXTREMELY STRONG SECURITY POSITION
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 46 Funding strategy
Ensure sufficient security of funding
Maintain liquidity
Secure flexible funding arrangements
Diversify funding sources
Improve speed/access to market
Lower cost of new funding
BUSINESS STRATEGY IS UNDERPINNED BY A CLEAR FUNDING STRATEGY
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 47 Public Credit Ratings
Moody’s: A3 (stable) (updated 10 th December 2019)
Credit strengths include: One of the largest housing associations in the UK A3 Stable financial metrics and consistent strategy Stable outlook
Ample unencumbered assets and bespoke treasury policy
S&P: A (negative) (updated 3rd July 2020) “Funding activities in recent months have resulted in a significantly stronger liquidity position, creating a strong buffer to fund investments and debt service obligations over the next 12 months” A Negative outlook “the group's interest coverage will remain solid”
“Clarion should remain relatively resilient to the pandemic's impact.”
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 48 Thank you
CLARION HOUSING GROUP
6 MORE LONDON PLACE T O O L E Y S T LONDON SE12DA
CLARIONHG.COM
[email protected] Appendix: Benchmarking definitions
HA Group selected for comparison: ‘G15’ of Largest London Housing Associations plus five largest English HAs by turnover. NB: One Housing had not published 2019/20 accounts as at 12th October and therefore was not incorporated in this group.
Definitions:
Operating Margin Operating Surplus / Turnover Where: • Operating Surplus = Operating Surplus less surplus from asset sales and, where included in Operating Surplus, adjusted to deduct investment property revaluation and surplus/(deficit) from joint ventures.
EBITDA MRI as % interest (Regulator of Social Housing definition) (EBITDA MRI ÷ Gross interest payable) x 100 Where: • EBITDA MRI = Operating surplus - Gain/(loss) on disposal of fixed assets (housing properties) - Amortised government grant - Grant taken to income + Interest receivable - Capitalised major repairs expenditure for period + Total depreciation charge for period • Gross interest payable = Interest capitalised + Interest payable and financing costs NB: As noted in the slide entitled “Benchmarking (2019/20 accounts – G15 + 5 largest)”, the following further adjustments were made to aid comparability:
1) where included in Operating Surplus, EBITDA MRI adjusted to deduct investment property revaluation and surplus/(deficit) from joint ventures; 2) Clarion interest receivable adjusted to remove £15.5m breakage income; 3) credits to interest due to release of acquisition accounted loan fair values excluded
Operating Cost (excluding Depreciation and Amortisation) per unit (Operating cost less Depreciation less Amortisation) / no. of housing units Where: No. of housing units = all units in management excluding leaseholder properties (i.e. those where the HA owns the freehold only)
Gearing (Regulator of Social Housing definition) (Net debt ÷ carrying value of housing properties) x 100 Where: • Net debt = [short-term loans + Long term loans - Cash and cash equivalents + Amounts owed to group undertakings + Finance lease obligations] • Carrying value of housing properties = [tangible fixed assets: housing properties at cost (period end) / tangible fixed assets: housing properties at valuation (period end)] • Cost is the net book value after any depreciation rather than just the cost of properties
CLARION HOUSING GROUP PRESENTATION TO FIXED INCOME INVESTORS – 13 OCTOBER 2020 50